Xcel says it will meet carbon-free law by 2035 under energy plan approved by Minnesota regulators

Xcel Energy says it expects to meet Minnesota’s carbon-free law five years before the 2040 deadline by shutting down its coal plants, extending the life of two nuclear plants, and building vast amounts of new wind, solar and battery power.

The company could come close to doubling its capacity for wind energy by the end of the decade under a new electricity supply plan approved unanimously on Thursday by the Minnesota Public Utilities Commission (PUC).

Xcel, Minnesota’s largest electric utility, plans to build one new gas plant in 2028 and keep some of that fossil fuel generation around even in 2040.

“Our plan positions us to advance our clean energy vision by adding wind and solar resources while reinforcing the reliability of the grid with battery storage and clean natural gas,” said Ryan Long, president of Xcel Energy in Minnesota, in a written statement.

The commission’s chair, Katie Sieben, said Xcel will have a reliable and affordable system under the plan while allowing it to build clean energy to meet state goals.

Every few years, Xcel must submit a long-range supply plan. These proposals are heavily scrutinized and often contested by clean energy groups, state officials, Xcel’s large customers and others.

This one was particularly notable because Xcel has reached a critical moment in its transition from fossil fuels.

Xcel is losing a major amount of its power supply by closing its Sherco and Allen S. King coal plants in phases by 2030. At the same time, the company will need far more energy than ever as tech companies like Amazon and Meta plan data centers and more Minnesotans buy electric vehicles and appliances like heaters.

Xcel’s initial proposal included at least two new gas plants in the near term, drawing criticism from environmental advocacy groups and others.

But the company struck a deal with climate advocates, construction unions, the Minnesota Department of Commerce and several energy developers. Under that deal, Xcel will use more batteries than it originally proposed to replace coal and keep pace with rising energy demand.

The PUC approved that settlement, with a few modifications.

Xcel said the settlement would be cheaper for customers than its original proposal. The company said adding the power sources would increase estimated electric bills each year by about 1%, though that is assuming Xcel can tap into $5.7 billion in tax credits from the Inflation Reduction Act.

President Donald Trump has promised to eliminate or pare back that law’s spending on energy projects and mitigation of climate change. That’s one reason why the Minnesota Department of Commerce urged the PUC to quickly adopt Xcel’s plan so it can take advantage of the tax credits as soon as possible.

Under the blueprint approved by the PUC, Xcel’s energy use would change dramatically between now and Minnesota’s 2040 goal for a carbon-free grid.

Renewables now make up nearly 41% of the company’s energy in the upper Midwest, but Xcel estimates that would jump to roughly 63%. That includes wind, solar, hydroelectric and burning wood and garbage.

Nuclear would remain a large part of Xcel’s supply, providing around-the-clock carbon-free power. Coal would disappear and gas use would eventually shrink substantially, but not be eliminated by 2040.

In the near term, Xcel plans for wind farms to provide most of its new electric supply and will revisit its plan well before the 2040 deadline.

Xcel also said it needed a large amount of new power that’s not dependent on wind or sun. To that end, Xcel plans to extend contracts with gas plants in Cannon Falls and Mankato, then build a facility in Lyon County.

That southwestern Minnesota plant would run primarily in times of high demand. It would also be capable of running up to 30% on hydrogen in the aim of cutting carbon emissions.

Environmental groups preferred the contract extensions to new gas plants they feared would cost more for customers and be more difficult to retire. The Lyon County plant has a 40-year life span, though the Minnesota Department of Commerce said Xcel committed to plan for reducing the facility’s emissions to zero or closing it by 2040.

The settlement doesn’t preclude Xcel from asking for permission to build other gas plants after 2030.

Xcel already has a large fleet of plants that run on natural gas and oil, most of which won’t be retired before 2040. Electric utilities aren’t banned from using fossil fuels under Minnesota’s climate law.

The law says utilities must generate or buy enough carbon-free power to equal the amount of electricity that Minnesota customers use.

That means a utility can sometimes generate more carbon-free power than their customers use, and export the extra electricity to the grid. As long as total Minnesota demand is met by carbon-free energy, a utility can still occasionally use fossil fuel-generated electricity without running afoul of the law.

Xcel’s deal was with four clean energy organizations: Fresh Energy, the Minnesota Center for Environmental Advocacy, the Sierra Club and Clean Grid Alliance, a trade group representing clean energy developers.

The settlement also included three construction trade unions, several power developers, as well as the state Commerce Department.

Xcel still needs some permits for extending the life of the Prairie Island nuclear plant, and will also need individual permits for other projects like the Lyon County gas plant.

The sprawling plan approved by the PUC was not without controversy.

Attorney General Keith Ellison and a coalition of Xcel’s large industrial customers worried the plan did not do enough to protect customers and keep bills low. Before the vote, they had called for the PUC to reject the settlement.

On Thursday, in response, the PUC capped the costs for new projects that are part of the settlement, unless Xcel can prove any price increases are because of factors outside of the company’s control and the cost is still reasonable.

Some opposed extending the life of the waste-burning plants, or Xcel’s nuclear plants, among other points of controversy.

Xcel’s plan has two innovative projects. One is for a long-lasting battery that stores heat in bricks to hold energy. Another is for Xcel to create a network of small solar arrays and batteries linked through technology to operate effectively as a larger power plant.